The Nash Bargaining Solution

The Nash Bargaining Solution is a concept from game theory that describes an ideal outcome when two parties negotiate over how to split a resource or resolve a dispute. It suggests the best agreement is one where both sides maximize their own benefit while ensuring that neither is worse off than if they didn't reach an agreement. The solution is fair, balancing each party's needs, and is based on their alternatives if negotiations fail, called "outside options." Essentially, it provides a rational, fair basis for compromise that benefits both sides in a negotiation.